An economy is in equilibrium. From the following data, calculate the marginal propensity to save: |
(a) Income = 10,000 |
(b) Autonomous consumption = 500 |
(c) Consumption expenditure = 8,000 |
Answer:
Applying the equation: \[c=\overline{c}+by\] Where, c = consumption expenditure (8, 000) \[\overline{c}\] = autonomous consumption (- 500) b = MPC (marginal propensity to consume) y = Income (10,000) \[8,000=500+b\times 10,000\] \[8000=500+10,000b\] \[8000-500=10,000b\] \[7,500=10,000b\] \[b=\frac{7,500}{10,000}\] b = 0.75, MPC = 0.75 Now, MPS + MPC = 1 \[=1-MPC\] \[=1-0.75\] Hence the value of MPS = 0.25
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